AI investments raise credit risks for tech giants

S&P has raised concerns about the growing credit risks for major tech companies as they invest heavily in AI infrastructure. These firms, including Amazon, are spending trillions of dollars, much of it borrowed, to fund data centers and other AI-related projects, which are driving U.S. economic growth. S&P analysts warn that the credit quality of hyperscalers is gradually weakening, though most remain highly rated borrowers with strong cash flows, except for Oracle. Much of the funding for AI initiatives comes from debt, with Amazon raising around $100 billion in the bond market this year. Hyperscalers are also helping less well-known companies borrow at lower interest rates by leveraging their strong credit ratings. Richard de Chazal of William Blair Equity Research notes that AI earnings are becoming more circular, and a stumble by a lesser-known company could hurt the giants and ripple through the interconnected system in unpredictable ways. The report highlights 'Rumsfeldian' unknowns in the rapidly expanding AI sector, including how risks could spread through the financial system if one of these companies faces difficulties. While the risks are not deemed existential, the growing complexity of AI financing is creating new challenges for credit ratings and financial stability.